Kermit Companys master budget calls for production and sale of 12,000 units for $48,000; variable costs of
Question:
Kermit Company’s master budget calls for production and sale of 12,000 units for $48,000; variable costs of $18,000 and fixed costs of $16,000. During the most recent period, the company incurred $24,000 of variable costs to produce and sell 15,000 units for $64,000. During this same period, the company earned $25,000 of operating income.
Required
1. Determine the following for Kermit Company:
a. Flexible-budget operating income.
b. Flexible-budget variance, in terms of contribution margin.
c. Flexible-budget variance, in terms of operating income.
d. Sales volume variance, in terms of contribution margin.
e. Sales volume variance, in terms of operating income.
2. Explain why the contribution margin sales volume variance and the operating income sales volume variance for the same period are likely to be identical.
3. Explain why the contribution margin flexible-budget variance is likely to differ from the operating income flexible-budget variance for the same period.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
1 Budget data Selling price 4800012000 units 400 per unit Variable cost 1800012000 units 150 per unit a Flexible budget for 15000 units Sales 15000 x ...View the full answer
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
